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Daily Newsletter, Wednesday, 08/27/2003

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The Option Investor Newsletter Wednesday 08-27-2003
Copyright 2003, All rights reserved. 1 of 2
Redistribution in any form strictly prohibited.
In Section One:
Wrap: Technology Crawls Higher
Futures Wrap: Equities Drift, Gold Breaks Out
Index Trader Wrap: See Note
Posted online for subscribers at http://www.OptionInvestor.com
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MARKET WRAP (view in courier font for table alignment)
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08-27-2003 High Low Volume Advance/Decline
DJIA 9333.79 - 6.66 9346.98 9306.49 1.28 bln 1673/1128
NASDAQ 1782.13 + 11.48 1783.12 1764.63 1.34 bln 1865/1128
S&P 100 498.73 + 1.07 500.02 492.75 Totals 3538/2256
S&P 500 996.79 + 0.06 998.05 993.33
RUS 2000 490.92 + 4.41 491.44 485.91
DJ TRANS 2632.63 - 4.07 2637.37 2622.90
VIX 20.34 + 0.01 21.07 20.28
VXN 30.05 + 0.71 31.52 29.41
Total Volume 2,794M
Total UpVol 1,902M
Total DnVol 824M
52wk Highs 368
52wk Lows 49
TRIN 0.92
PUT/CALL 1.08
*******************************************************************
Technology Crawls Higher
by James Brown
It was a lethargic day on Wall Street. Major market indices
barely budged. A lack of economic reports today and potential
apprehension for the reports coming out tomorrow and Friday could
have put investors on the defensive. Of course that's assuming
there were any investors paying attention with so many financial
professionals on vacation. Volume continues to be light on Wall
Street and it's only going to get lighter as we approaching the
Labor Holiday weekend.
Financials seemed to feel the brunt of the selling but the damage
was meager for the BIX and BKX indices. Tech stocks took the
opportunity to inch higher fueled by a round of upgrades for the
semiconductor sector. The SOX index lead the way with a 2.95%
gain closing just under 450. Bear Stearns, Lehman Brothers and
Harris Nesbitt Gerard all upgraded specific chip stocks.
Following the SOX higher was the DDX disk drive index, GHA
hardware index, NWX networking index, GSO software index and even
the INX Internet index.
The Dow Jones Industrial Average was nearly split down the middle
with 13 winners and 16 losers led lower by SBC Communications,
Johnson and Johnson and 3M. The $INDU closed down less than 7
points near 9333. Meanwhile the NASDAQ Composite inched higher
to close up about eleven and a half points at 1782. The S&P 500
remains almost unchanged at 996. Not helping the mood of the
markets were small losses across the Pacific in the Asian
exchanges but these were countered by small gains in their
European counterparts.
Market internals reflected a slightly different story with
advancing issues outpacing decliners by 16 to 11 on the NYSE and
18 to 11 on the NASDAQ. New highs were growing again with 271
swallowing the 16 new lows between the two exchanges. Up volume
bested down volume as well, indicating that despite recent
statements from Wall Street pundits, the path of least resistance
may be up. Optimists will note that we continue to see money
move into small caps as the Russell 2000 index added another five
points on top of its recent rebound.
Chart of the Dow Jones Industrial Average:
Chart of the NASDAQ Composite:
It certainly felt like the market was asleep but technology bulls
took advantage of the slumbering bears to drive all of the tech-
related indices higher. Other indices making gains were the DFI
defense index and the RLX retail index. Last night Sears came
out with positive comments saying August sales were doing better
than expected. Plus traders saw Dollar Tree (DLTR) add almost
four percent after beating earnings estimates and raising
guidance. However, probably the most impressive gain was the XAU
gold & silver index. The XAU added 4.3 percent to close at
91.34. Aside from some intraday highs in September of 1999,
today is the best closing high since April of 1998. If the XAU
can close above 93.50 it will be the best close since October of
1997.
With the markets in a lull before the holiday and the end of week
economic reports financial media turned their spotlight on
Richard Grasso, Chairman of the New York Stock Exchange. Grasso
has been with the company for 36 years and just signed a new
agreement to extend his contract by two more years to 2007 paying
him a base salary of $1.4 million and an annual bonus of at least
$1 million. No one argues that he is richly paid but what
shocked and alarmed some investors and industry professionals was
the $140 million that the NYSE just paid Grasso. The exchange
said the $140 million was Grasso's accrued savings, retirement
benefits and incentive awards. I imagine there are plenty of
people in line to interview for that job when he decides to
retire.
Traders need to be careful as we endure Thursday and Friday's
sessions. Tomorrow, before the bell, will be the weekly
unemployment claims. Wall Street is looking for a slight
increase to 390,000 and hopes if there is an upside surprise it
remains below the 400,000 mark. We'll also get the Q2 GDP
numbers. Actually, it's just the revision of the Q2 GDP numbers,
which came in at +2.4%. That was a lot higher than the +1.4%
expectation. There appears to be some disagreement on whether
the revision will be up or down. Tomorrow will also reveal the
latest help wanted index readings. Friday, if anyone is still
paying attention and not packing the car for a weekend getaway,
will produce the Personal Income and Spending numbers before the
opening bell. During Friday's session we'll hear the Michigan
Sentiment report and the Chicago PMI index result.
There are not a lot of reasons to be buying stocks ahead of the
weekend when most investors will be waiting to hear from these
various economic reports. Trade carefully.
************
FUTURES WRAP
************
Equities Drift, Gold Breaks Out
Jonathan Levinson
Goldbugs had a perfect day, with gold breaking out of its
multimonth pennant and closing near its highs, while the AMEX
Goldbugs Index adding double digits to a 6 year closing high.
Equities were mixed, with the ES closing lower by 0.25, NQ adding
12 and YM losing 7.
Daily Pivots (generated with a pivot algorithm and unverified):
10 minute chart of the US Dollar Index
The US Dollar Index recovered overnight from yesterday's steep
selloff, but got sold again when Europe opened, bottoming just
above 98.50 and spending the day edging higher toward 99.95 as of
this writing. The bounce has taken the shape of a bear wedge
projecting to a possible high of 99 currently.
Daily chart of December gold
The biggest action of the session was in precious metals, with
the CRB holding above 241 on strength in gold, silver and
platinum futures. The breakout took even goldbugs by surprise,
with the upper descending trendline on the pennant we've been
tracking for months was broken with authority. December gold
moved quickly over 370 did not pull back below 371. The intraday
high was 375.40, with the December contract nearly quadrupling
yesterday's volume and spending most of the afternoon above 373,
up 7.30 at 374.10 as of this writing. The HUI and XAU rallied as
well, closing at their highs of the day, adding 11.14 and 3.76
respectively to close at 193.89 and 91.33. December silver was
up 13.4 cents to 5.16.
Daily chart of the ten year note yield
The Treasury auction of 25B in 2 year notes generated a bid to
cover ratio of 1.73, with the majority of bonds sold at the high
yield of 2.04%. Treasury yields were higher across the curve
after trading mixed near the open, finishing the day solidly in
the green. The five year note yield gained 7.4 basis points, the
ten year (TNX) +5 bps to close at 4.536%, and the thirty +3.3 bps
to close at 5.31%. The green close kept the TNX above the
secondary rising trendline, but not by much, and the upwardly
drifting 10 day stochastic appears to be rolling over. If so,
ten year treasuries could be finding support at a higher low.
Daily NQ candles
The NQ was the equity darling today, with the daily candle print
back above the ascending trendline. The oscillator upphase has
been threatening to follow those of the ES and YM, but gained
some leeway with today's 12 point gain. While it's an
encouraging development, the trendline has been exerting magnetic
pull recently, and the daily oscillators remain in topping
territory. While the NQ looks extended to me, this year has
shown us that money can buy anything, including extended indices.
The dollar was lower, gold was higher, and while treasuries
bucked the trend, there was the treasury auction obfuscating our
intermarket analysis. Bears are hungry for a pullback, but the
NQ may well continue to deny it.
30 minute 20 day chart of the NQ
Despite the bullish daily print, the 30 minute chart looks less
bullish. The oscillators are maxxed out on this shorter cycle,
and the 1320 level acted like a brick wall. Tomorrow AM's data
could gap the NQ higher and cause the 300 minute stochastic to
begin trending in overbought as the daily cycle marches higher,
but again, the oscillators tell us that bulls bear the burden of
proof for the time being.
Daily ES candles
The ES went nowhere today, and did so within a 5 point range.
With the daily cycles and 30 minute clearly topped out, the
technical bet is for downside from here. 996 acted like a magnet
all afternoon. A trip to 983 would extend the trading range
we've been following without significantly changing the technical
picture, but today's failure below 998 dulled the outlook for ES
bulls.
20 day 30 minute chart of the ES
Note how, on the 30 minute Macd, the oscillator is rolling over
from a lower high. The recent up-phase on the stochastic and
Macd started from a higher low, however, and this sets the stage
for more sideways trading as bulls and bears force the issue into
a narrowing range.
150 tick chart of the ES
Daily YM candles
Like the ES, the YM had a narrow range, quiet day, dropping 7
points. The cyclical picture is the same as for the ES.
20 day 30 minute chart of the YM
For tomorrow, we have numerous potentially market-moving economic
data due. If not for the action in gold and the dollar during
the past two days, I'd be much less cautious on the bear side
than I am. A liquidity-driven flagpole rally, such as we've been
conditioned to fear, could blow the cycle setup out the window in
a small number of ticks. I don't see a long setup from here
based on the charts I follow, which are weighted to the bearish
side.
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The Option Investor Newsletter Wednesday 08-27-2003
Copyright 2003, All rights reserved. 2 of 2
Redistribution in any form strictly prohibited.
In Section Two:
Stop Loss Updates: None
Dropped Calls: None
Dropped Puts: None
New Call: CCMP
Play of the Day: Call - SPW
Spreads, Combinations & Premium-Selling Plays: Another "Ho-Hum"
Session!
Watch List: Three Techs & a Cyclical
Updated on the site tonight:
Market Posture: Mirror Image
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DROPPED CALLS
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DROPPED PUTS
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********
NEW CALL
********
Cabot Microelect. - CCMP - close: 64.45 change: +1.52 stop: 61.50
Company Description:
Cabot Microelectronics is a supplier of high performance polishing
slurries used in the manufacture of advanced integrated circuit
(IC) devices, within a process called chemical mechanical
planarization (CMP). CMP is a polishing process used by IC device
manufacturers to flatten many of the multiple layers of material
that are built upon silicon wafers and necessary in the production
of advanced ICs. CMP enables IC device manufacturers to produce
smaller, faster and more complex IC devices with fewer defects.
Why we like it:
After last week's euphoric conclusion of the powerful rally in the
Semiconductor sector (SOX.X), investors have been selling into
strength producing the expected bout of profit taking. In
reality, the profit taking was actually pretty mild and after
yesterday's intraday dip back to the $425 level, the bulls went
back to work. Despite the lackluster day in the rest of the
market on Wednesday, the SOX gained 2.95% and closed just below
$450, its best close since last June. CCMP has been a solid
performer in recent months, building a steady pattern of higher
highs and higher lows following the March lows. Since that low
near $41, the stock has been advancing in an ascending channel,
the bottom of which is near $62.50, with the top at $71. With
solid resistance near $68.50, it was no great surprise to see the
stock turned back from that level last week, especially in the
wake of last Thursday's downgrade to Neutral from UBS. The
resultant profit taking took CCMP back down to the bottom of the
channel (also the site of the 20-dma, now at $63), where the bulls
eagerly went on a dip-buying spree today.
This looks like an ideal point for new bullish entries, as CCMP
still has plenty of room to run to the upside before encountering
the top of its channel. The only problem is that the latest bout
of selling actually put the PnF chart on a Sell signal and we'll
need to see a rally through $69 to negate that bearish factor.
With that bearish development on the PnF chart, this is definitely
a more aggressive play, but with sector strength in its favor, as
well as strong support in the $62-63 area, the risk reward looks
favorable. Targeting new entries on another rebound from the
bottom of the channel will provide the best risk reward for an
anticipated move to the top of the channel. Of course a push
through today's intraday high ($64.45) can be used for aggressive
entries into the play as well. Look for initial resistance in the
$67.50-68.50 area (near the recent highs), but continued strength
in the SOX should help to propel CCMP through that resistance and
quite possibly as high as $75. Our initial target will be for a
move to $71, with an aggressive target of $75. Set stops
initially at $61, which is below both the 30-dma ($61.59) and
yesterday's intraday low. Note that the 30-dma hasn't been
touched since the end of May.
Suggested Options:
Shorter Term: The September 65 Call will offer short-term traders
the best return on an immediate move, as it is slightly in the
money.
Longer Term: Aggressive traders looking to capitalize on an
extended rally will want to look to the October 70 Call. This
option is currently out of the money, but should provide
sufficient time for the stock to move higher without time decay
becoming a dominant factor over the short run. More conservative
long-term traders will want to use the October 65 Call.
BUY CALL SEP-65 UKR-IM OI=1329 at $2.65 SL=1.00
BUY CALL SEP-70 UKR-IN OI= 991 at $0.90 SL=0.40
BUY CALL OCT-65 UKR-JM OI= 454 at $4.40 SL=2.75
BUY CALL OCT-70 UKR-JN OI= 563 at $2.40 SL=1.25
Annotated Chart of CCMP:
Picked on August 27th at $64.45
Change since picked: +0.00
Earnings Date 10/23/03 (unconfirmed)
Average Daily Volume = 881 K
**********************
PLAY OF THE DAY - CALL
**********************
SPX Corporation - SPW - close: 48.60 change: +0.93 stop: 46.75
Company Description:
SPX Corporation is a global provider of technical products and
systems, industrial products and services, flow technology and
service solutions. The company offers networking and switching
products, fire detection and building life-safety products,
television and radio broadcast antennas and towers, life science
products and services, transformers, dock products and systems,
cooling towers, air filtration products, valves, back-flow
protection and fluid handling devices and metering and mixing
solutions. The company also provides specialty service tools,
diagnostic systems, service equipment and technical information
services. SPW services a broad array of customers in a variety
of industries, including chemical processing, pharmaceuticals,
infrastructure, mineral processing, petrochemical,
telecommunications, financial services, transportation and power
generation. (source: company press release)
Most Recent Update (Tuesday, August 26, 2003):
Believe it or not, bullish sentiment is still alive and well, and
that is certainly seen by the pattern building on the daily chart
of SPW. With the rebound from just above $47.50 this morning, we
can see that the bulls are defending a steeper trendline than we
had initially looked at. This one connects the 7/23 and 8/07
intraday lows and currently rests at $47.40, just below today's
intraday low before the stock rebounded strongly into the
afternoon to end the session with a 1.95% gain. The pattern of
higher lows and higher highs is still being formed and traders
that took advantage of Tuesday's dip to initiate new positions
look to have caught a solid entry, albeit just a bit above our
expected $47.00-47.50 rebound zone. Remember, there's still a
lot of congestion near the $50 level (the primary reason that we
haven't been advocating entries on a break above the recent
highs), so buying dips still appears to be the best approach.
Aggressive traders can consider new positions on a breakout over
$50, but need to watch for a failed breakout. Next solid
resistance comes in near $53.
- Play of the Day Comments -
Shares of SPW continue to stair-step their way higher and the
stock just bounced from the $47.50 level. Moderate to aggressive
traders can use current levels for an entry point while more
conservative traders might want to wait for a move over $50.00
first.
Suggested Options:
Shorter Term: The September 47 Call will offer short-term traders
the best return on an immediate move, as it is slightly in the
money.
Longer Term: Aggressive traders looking to capitalize on an
extended rally will want to look to the October 50 Call. This
option is currently out of the money, but should provide
sufficient time for the stock to move higher without time decay
becoming a dominant factor over the short run. More conservative
long-term traders will want to use the October 47 Call.
BUY CALL SEP-47 SPW-IW OI= 663 at $2.30 SL=1.15
BUY CALL SEP-50 SPW-IJ OI=3836 at $1.05 SL=0.50
BUY CALL OCT-47 SPW-JW OI= 6 at $3.30 SL=1.60
BUY CALL OCT-50 SPW-JJ OI=2754 at $1.95 SL=1.00
Annotated chart:
Picked on August 14th at $48.14
Change since picked: +0.73
Earnings Date 10/27/03 (unconfirmed)
Average Daily Volume = 896 K
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*********************************************
SPREADS, COMBINATIONS & PREMIUM-SELLING PLAYS
*********************************************
Another "Ho-Hum" Session!
By Ray Cummins
U.S. stocks ended mixed Wednesday with the major equity averages
trading in a small range amid a dearth of market-moving catalysts.
The Dow Jones Industrial Average retreated 19 points to 9,320 on
weakness in Alcoa (NYSE:AA), J.P. Morgan Chase (NYSE:JPM) and SBC
Communications (NYSE:SBC). The NASDAQ rose 4 points to close at
1,775 as semiconductor, disk-drive and networking stocks added to
recent gains. The Standard & Poor's 500 Index ended unchanged at
996 with oil service, retail, tobacco and gold issues among the
upside movers while banking, home builders, chemical, and health
provider shares endured limited selling pressure. Volume came in
at 1.05 billion shares on the Big Board and 1.3 billion shares on
the NASDAQ. Advancing stocks outnumbered decliners by a ratio of
5 to 3 on both the NYSE and the technology exchange. In the bond
market, the 10-year note declined 14/32 to yield 4.53% while the
30-year government bond dropped 1/2 to yield 5.31%.
***************
SUMMARY OF CURRENT POSITIONS - AS OF 8/26/03
***************
The following summary is a reasonable account of the positions
previously offered in this section. However, no representation
is being made as to the actual performance of a position and in
fact, there are frequently large differences between the summary
results and those of our subscribers, due to the variety of ways
in which each play can be opened, closed, and/or adjusted. In
addition, the summary might not be completely representative of
the manner in which the average trader would react to changing
conditions in a position and to the options market in general.
The editor of this section does not take actual positions in any
published plays and the summary comments are simply a service to
help new traders understand when positions might be opened and
closed. In most cases, actions taken based on the commentary
would be far too late to be effective, thus it is not intended
as a substitute for personal trade management nor does it in
any way replace your duty to diligently monitor and manage the
positions in your portfolio.
MONTHLY YIELD FOR UNCOVERED OPTIONS: MAXIMUM & SIMPLE
The Maximum Yield (listed in the summary and with "naked" option
selling plays) is the greatest possible profit available in the
position. This amount, expressed as a percentage, is based on
the initial margin requirement as determined by the Board of
Governors of the Federal Reserve, the U.S. options markets and
other self-regulatory organizations. Although increased margin
requirements may be imposed either generally or in individual
cases by various brokerage firms, our calculations use the widely
accepted margin formulas from the Chicago Board Options Exchange.
The "Simple Yield" is based on the cost of the underlying issue
(in the event of assignment), including the premium from the sold
option, thus it reflects the maximum potential loss in the trade.
Naked Puts
**********
Stock Strike Strike Cost Current Gain Max Simple
Symbol Month Price Basis Price (Loss) Yield Yield
DRIV SEP 17 17.15 26.68 $0.35 4.88% 2.04%
IMCL SEP 30 28.85 40.01 $1.15 8.88% 3.99%
LLTC SEP 32 31.75 39.80 $0.75 4.40% 2.36%
OVTI SEP 30 29.15 41.15 $0.85 6.18% 2.92%
SINA SEP 22 21.90 31.20 $0.60 5.80% 2.74%
ZRAN SEP 20 19.60 24.10 $0.40 4.92% 2.04%
CBK SEP 35 34.55 41.10 $0.45 3.39% 1.30%
IMCL SEP 30 29.45 40.01 $0.55 5.18% 1.87%
LLTC SEP 32 32.00 39.80 $0.50 3.64% 1.56%
NVLS SEP 30 29.55 39.64 $0.45 3.92% 1.52%
OVTI SEP 30 29.35 41.15 $0.65 5.83% 2.21%
PCLN SEP 25 24.65 36.28 $0.35 4.03% 1.42%
PHTN SEP 22 22.10 29.73 $0.40 5.24% 1.81%
RIMM SEP 20 19.60 27.66 $0.40 5.78% 2.04%
URBN SEP 40 39.40 46.44 $0.60 3.78% 1.52%
AEIS SEP 17 17.10 22.43 $0.40 5.97% 2.34%
AEIS SEP 20 19.50 22.43 $0.50 7.31% 2.56%
FLML SEP 17 17.00 21.30 $0.50 9.88% 2.94%
IMCL SEP 35 34.50 40.01 $0.50 4.45% 1.45%
JCOM SEP 50 49.40 58.75 $0.60 4.30% 1.21%
MGAM SEP 22 22.20 26.19 $0.30 4.08% 1.35%
NFLX SEP 22 22.25 29.79 $0.25 4.01% 1.12%
NTES SEP 40 39.55 48.97 $0.45 4.13% 1.14%
PHTN SEP 25 24.60 29.73 $0.40 5.15% 1.63%
RIMM SEP 22 22.15 27.66 $0.35 5.48% 1.58%
SINA SEP 25 24.70 31.20 $0.30 4.23% 1.21%
ANPI SEP 35 34.55 43.79 $0.45 4.69% 1.30%
Naked Calls
***********
Stock Strike Strike Cost Current Gain Max Simple
Symbol Month Price Basis Price (Loss) Yield Yield
CVTX SEP 32 32.95 24.43 $0.35 5.65% 1.06%
MEDI SEP 40 40.65 34.08 $0.65 4.68% 1.60%
RJR SEP 35 35.55 33.08 $0.55 4.15% 1.55%
CVTX SEP 30 30.45 24.43 $0.45 8.12% 1.48%
Put-Credit Spreads
******************
Symbol Pick Last Month L/P S/P Credit C/B G/L Status
KSS 60.64 61.95 SEP 50 55 0.60 54.40 $0.60 Open
WHR 66.05 68.68 SEP 55 60 0.60 59.40 $0.60 Open
XAU 82.67 87.57 SEP 70 75 0.55 74.45 $0.55 Open
APPX 43.86 47.54 SEP 30 35 0.55 34.45 $0.55 Open
CHIR 46.33 49.95 SEP 40 42 0.25 42.25 $0.25 Open
TIF 37.42 38.40 SEP 30 35 0.45 34.55 $0.45 Open
AMZN 43.76 45.93 SEP 37 40 0.30 39.70 $0.30 Open
KLAC 54.35 57.40 SEP 47 50 0.30 49.70 $0.30 Open
RCII 75.80 77.68 SEP 65 70 0.60 69.40 $0.60 Open
Call-Credit Spreads
*******************
Symbol Pick Last Month L/C S/C Credit C/B G/L Status
UNH 48.79 49.24 SEP 57 55 0.30 55.30 $0.30 Open
WLP 76.49 76.28 SEP 90 85 0.50 85.50 $0.50 Open
CTX 73.74 77.23 SEP 85 80 0.65 80.65 $0.65 Open
NBIX 49.52 51.90 SEP 60 55 0.60 55.60 $0.60 Open
LLY 61.61 64.56 SEP 70 65 0.55 65.55 $0.55 Open?
MRK 52.12 50.30 SEP 60 55 0.55 55.55 $0.55 Open
Eli Lilly (NYSE:LLY) is on the early-exit list after this week's
recovery rally and the position should be closed on any further
upside activity.
Synthetic Positions
*******************
No Open Positions
Debit Straddles
***************
Stock Pick Last Exp. Long Long Initial Max Play
Symbol Price Price Month Call Put Debit Value Status
ABC 60.00 57.65 NOV 60 60 7.25 7.00 Open
Questions & comments on spreads/combos to Contact Support
**************
NEW POSITIONS
This following group of plays is simply a list of candidates to
supplement your search for profitable trading positions. As with
any new investment, you must decide if the selections meet your
criteria for potential plays. Only you can know what strategies
are suitable for your personal skill level, risk-reward tolerance
and portfolio outlook. In addition, we recommend that you avoid
any trading techniques in which you are not completely comfortable
with the potential capital loss, the necessary adjustments, and
the common entry-exit strategies. The positions with "*" will be
included in the weekly summary. Those with "TS" (Target-Shoot)
are below our minimum monthly return, but may offer a favorable
entry price with a limit order, due to the daily volatility of
the underlying issue.
**************
BULLISH PLAYS - NAKED PUTS
All of these issues have robust option premiums and relatively
favorable technical indications. However, current news and market
sentiment will have an effect on these stocks, so review each play
thoroughly and make your own decision about its future outcome.
WARNING: THE RISK IN SELLING UNCOVERED OPTIONS IS SUBSTANTIAL!
The sale of uncovered puts entails considerable financial risk,
far more than the initial margin or collateral required to open
a position. The maximum financial obligation for the sale of a
naked put is the strike price (of the underlying stock) that is
sold. Although this obligation is reduced by the premium from
the sale of the option, a writer of puts should have the cash or
collateral equivalent of the sold strike price in reserve at all
times. In addition, there is one very important rule when using
this strategy: Don't sell puts on stocks that you don't want to
own! Why? Because stocks occasionally experience catastrophic
declines, exponentially increasing the margin maintenance and
possibly causing a devastating shortfall in your portfolio. It
is also important that you consider using trading stops on naked
option positions to help limit losses when a stock's price falls.
Many professional traders suggest closing the position when the
underlying share value moves below the sold strike, or using a
"buy-to-close" stop order at a price that is no more than twice
the original premium received from the sold option.
**************
AEIS - Advanced Energy $23.22 *** The Rally Continues! ***
Advanced Energy (NASDAQ:AEIS) is a leader in the development and
support of technologies for critical high-technology manufacturing
processes used in the production of semiconductors, flat panel
displays, data storage products, compact discs, digital video
discs, architectural glass, and other advanced product applications.
Leveraging a diverse product portfolio and technology leadership,
the firm creates solutions that maximize process impact, improve
productivity and lower cost of ownership for its customers. This
portfolio includes a comprehensive line of technology solutions in
power, flow, thermal management, plasma and ion beam sources, and
integrated process monitoring and control for original equipment
manufacturers and end-users around the world.
AEIS - Advanced Energy $23.22
PLAY (sell naked put):
Action Month & Option Open Last Cost Max. Simple
Req'd Strike Symbol Int. Price Basis Yield Yield
SELL PUT SEP 20 OEQ UD 39 0.25 19.75 5.0% 1.3% *
SELL PUT SEP 22.5 OEQ UX 44 1.05 21.45 13.8% 4.9%
**************
BRKS - Brooks Automation $24.51 *** On The Move! ***
Brooks Automation (NASDAQ:BRKS) is a supplier of automation
products and solutions for the global semiconductor and related
industries, such as the data storage, flat-panel display and
other precision electronics manufacturing industries. The firm
operates in the cluster-tool, vacuum-processing environment and
in integrated factory automation software applications. Its
offerings have grown from individual robots used to transfer
semiconductor wafers in advanced production equipment to fully
integrated automation solutions that control the movement and
management of wafers and reticles in the wafer fabrication
facility. Through an investment and acquisition program, Brooks
has emerged as a supplier of factory and equipment automation
solutions for semiconductor manufacturers and original equipment
manufacturers. The company operates in three segments: equipment
automation, factory automation hardware and factory automation
software.
BRKS - Brooks Automation $24.51
PLAY (sell naked put):
Action Month & Option Open Last Cost Max. Simple
Req'd Strike Symbol Int. Price Basis Yield Yield
SELL PUT SEP 20 BQE UD 20 0.25 19.75 5.7% 1.3% *
SELL PUT SEP 22.5 BQE UX 110 0.70 21.80 10.4% 3.2%
**************
FLML - Flamel Technologies $26.95 *** Bristol-Meyers Deal! ***
Flamel Technologies (NASDAQ:FLML) is a biopharmaceutical company
engaged mainly in the development of two polymer-based delivery
technologies for medical applications. The company's Micro-pump
technology is a multi-particulate technology for oral ingestion
of small molecule drugs with applications in controlled release,
tastemasking and bioavailability enhancement. The company has
three major products based on its Micropump technology: Asacard,
a controlled-release formulation of aspirin for the treatment of
cardiovascular disease; Metformin XL, a controlled-release form
of Metformin that is in development for use for the treatment of
Type II diabetes, and Genvir, a controlled-release acyclovir for
the treatment of genital herpes. In addition, FLML has developed
new herbicide delivery systems and has patented a biomaterial,
ColCys.
FLML - Flamel Technologies $26.95
PLAY (sell naked put):
Action Month & Option Open Last Cost Max. Simple
Req'd Strike Symbol Int. Price Basis Yield Yield
SELL PUT SEP 22.5 FLU UX 100 0.60 21.90 11.0% 2.7% *
SELL PUT SEP 25 FLU UE 30 1.40 23.60 17.3% 5.9%
**************
LLTC - Linear Technology $41.17 *** New Trading Range? ***
Linear Technology (NASDAQ:LLTC) designs, manufactures and sells
a broad line of standard high-performance linear integrated
circuits (ICs). Applications for the company's products include
telecommunications, cellular telephones, networking products,
optical switches, notebook and desktop computers, computer
peripherals, video/multimedia, industrial instrumentation,
security monitoring devices, high-end consumer products, digital
cameras and MP3 players, complex medical devices, automotive
electronics, factory automation, process control and military
and space systems.
LLTC - Linear Technology $41.17
PLAY (sell naked put):
Action Month & Option Open Last Cost Max. Simple
Req'd Strike Symbol Int. Price Basis Yield Yield
SELL PUT SEP 37.5 LLQ UU 1,840 0.35 37.15 3.4% 0.9% TS
SELL PUT SEP 40 LLQ UH 930 0.95 39.05 7.4% 2.4%
**************
OSIP - OSI Pharmaceuticals $36.87 *** New 52-Week High! ***
OSI Pharmaceuticals (NASDAQ:OSIP) is a biotechnology firm focused
on the discovery, development and commercialization of oncology
products that both extend life and improve the quality of life
for cancer patients worldwide. The company has established a
balanced pipeline of oncology drug candidates that includes both
next-generation cytotoxic chemotherapy agents and novel mechanism
based, gene-targeted therapies. The company's most advanced drug
candidate, Tarceva (erlotinib HC1), is a small-molecule inhibitor
of the epidermal growth factor receptor (HER1/EGFR). The protein
product of the HER1/EGFR gene is a receptor tyrosine kinase that
is over-expressed or mutated in many major solid tumors.
OSIP - OSI Pharmaceuticals $36.87
PLAY (sell naked put):
Action Month & Option Open Last Cost Max. Simple
Req'd Strike Symbol Int. Price Basis Yield Yield
SELL PUT SEP 30 GHU UF 1,430 0.35 29.65 5.4% 1.2% *
SELL PUT SEP 35 GHU UG 319 1.45 33.55 12.8% 4.3%
**************
NFLX - Netflix $32.37 *** New All-Time High! ***
Netflix (NASDAQ:NFLX) is an online entertainment service in the
United States that provides more than 600,000 subscribers access
to a comprehensive library of more than 11,500 movie, television
and other filmed entertainment titles. The company's standard
subscription plan allows subscribers to have three titles out at
the same time with no due dates, late fees or shipping charges.
Subscribers can view as many titles as they want in a month and
they select these titles at the firm's Website (www.netflix.com)
aided by its proprietary CineMatch technology. They receive them
on DVD by first-class mail and return them to the company at their
convenience using prepaid mailers. Once a title has been returned,
Netflix mails the next available title in a subscriber's queue.
NFLX - Netflix $32.37
PLAY (sell naked put):
Action Month & Option Open Last Cost Max. Simple
Req'd Strike Symbol Int. Price Basis Yield Yield
SELL PUT SEP 27.5 QNQ UY 398 0.45 27.05 6.7% 1.7% *
SELL PUT SEP 30 QNQ UF 1,461 1.25 28.75 13.4% 4.3%
**************
NTES - NetEase.com $48.92 *** Premium-Selling Only! ***
NetEase.com (NASDAQ:NTES) is a China-based Internet technology
company that pioneered the development of applications, services
and other technologies for the Internet in China. The NetEase Web
sites, operated by a company affiliate, organize and provide access
to 18 content channels through distribution arrangements with more
than one hundred international and domestic content providers. In
addition, the NetEase Internet sites offer a variety of products
and services, including Instant Messaging (Popo), Dating, Love,
Alumni and Personal Home Page. These products and services enable
users to communicate about interests and areas of expertise. At
the end of March 2003, the number of registered users of NetEase
Web sites reached 114 million with the average number of daily page
views over 370 million.
NTES - NetEase.com $48.92
PLAY (sell naked put):
Action Month & Option Open Last Cost Max. Simple
Req'd Strike Symbol Int. Price Basis Yield Yield
SELL PUT SEP 40 NQG UH 2,949 0.40 39.60 4.6% 1.0% *
SELL PUT SEP 45 NQG UI 2,401 1.50 43.50 11.1% 3.4%
**************
NVLS - Novellus Systems $40.07 *** Chip Sector Strength! ***
Novellus Systems (NASDAQ:NVLS) manufactures, sells and services
semiconductor processing equipment. The company's products are
comprised primarily of advanced systems used to deposit thin
conductive and insulating films on semiconductor devices, as well
as equipment for preparing the device surface prior to these
deposition processes. Novellus is a supplier of high productivity
deposition and surface preparation systems used in the fabrication
of integrated circuits. Chemical Vapor Deposition systems employ
a chemical plasma to deposit all of the dielectric (insulating)
layers and certain of the metal (conductive) layers on the surface
of a semiconductor wafer. Physical Vapor Deposition systems are
used to deposit conductive metal layers by sputtering metallic
atoms from the surface of a target source via high DC power.
Electrofill systems are used for depositing copper conductive
layers in a dual damascene design architecture using an aqueous
solution.
NVLS - Novellus Systems $40.07
PLAY (sell naked put):
Action Month & Option Open Last Cost Max. Simple
Req'd Strike Symbol Int. Price Basis Yield Yield
SELL PUT SEP 35 NLQ UG 6,193 0.25 34.75 2.9% 0.7% TS
SELL PUT SEP 37.5 NLQ UU 4,775 0.65 36.85 6.0% 1.8% *
SELL PUT SEP 40 NLQ UH 5,683 1.40 38.60 10.5% 3.6%
**************
PHTN - Photon $31.41 *** Next Leg Up? ***
Photon Dynamics (NASDAQ:PHTN) is a provider of yield management
solutions to the flat panel display (FPD) industry. The company
also offers yield management solutions for the printed circuit
board assembly and advanced semiconductor packaging industries
and the cathode ray tube display and CRT glass and auto glass
industries. The firm's test, repair and inspection systems are
used by manufacturers to collect data, analyze product quality
and identify and repair product defects at critical steps in the
manufacturing.
PHTN - Photon $31.41
PLAY (sell naked put):
Action Month & Option Open Last Cost Max. Simple
Req'd Strike Symbol Int. Price Basis Yield Yield
SELL PUT SEP 27.5 PDU UY 213 0.35 27.15 4.9% 1.3% *
SELL PUT SEP 30 PDU UF 74 0.90 29.10 9.5% 3.1%
**************
QCOM - Qualcomm $41.00 *** Entry Point? ***
Qualcomm (NASDAQ:QCOM) is a developer and supplier of code division
multiple access (CDMA)-based integrated circuits and system software
for wireless voice and data communications and global positioning
system (GPS) products. Qualcomm offers complete system solutions,
including software and integrated circuits for wireless handsets and
infrastructure equipment. This complete system solution approach
provides customers with advanced wireless technology and enhanced
component integration and interoperability, as well as reduced time
to market.
QCOM - Qualcomm $41.00
PLAY (sell naked put):
Action Month & Option Open Last Cost Max. Simple
Req'd Strike Symbol Int. Price Basis Yield Yield
SELL PUT SEP 37.5 AAW UU 8,289 0.35 37.15 3.3% 0.9% TS
SELL PUT SEP 40 AAW UH 4,831 0.95 39.05 7.4% 2.4%
**************
RCII - Rent A Center $78.44 *** 5-for-2 Split Coming! ***
Rent-A-Center (NASDAQ:RCII) is a primary store operator in the
rent-to-own industry. Rent-A-Center operates approximately 3,000
company-owned stores in 50 states, the District of Columbia and
Puerto Rico. The company's subsidiary, ColorTyme, is a national
franchisor of rent-to-own stores. ColorTyme has over 300 stores
in 42 states, 330 of which operated under the ColorTyme name and
12 stores of which operated under the Rent-A-Center name. The
company's stores offer popular consumer products, such as home
electronics, appliances, computers and furniture, and accessories
under flexible rental purchase agreements that typically allow the
customer to obtain ownership of the merchandise at the conclusion
of an agreed-upon rental period. These unique agreements cater to
customers who only have a temporary need, or who simply desire to
rent rather than purchase, the merchandise. Rent-A-Center is
planning a 5-for-2 stock split on 9/2/2003.
RCII - Rent A Center $78.44
PLAY (sell naked put):
Action Month & Option Open Last Cost Max. Simple
Req'd Strike Symbol Int. Price Basis Yield Yield
SELL PUT SEP 70 RQG UN 259 0.65 69.35 3.5% 0.9% TS
SELL PUT SEP 75 RQG UO 114 1.70 73.30 7.3% 2.3%
**************
BULLISH PLAYS - CREDIT SPREADS
These candidates are based on the underlying issue's technical
history or trend. The probability of profit in these positions
may also be higher than other plays in the same strategy, due to
small disparities in option pricing however, each play should be
evaluated for portfolio suitability and reviewed with regard to
your strategic approach and trading style.
***************
BBY - Best Buy $51.45 *** Bullish Break-Out! ***
Best Buy (NYSE:BBY) is America's leading specialty retailer of
consumer electronics, personal computers, entertainment software
and appliances. The company's subsidiaries operate retail stores
and/or Web sites under the names: Best Buy (BestBuy.com), Future
Shop (FutureShop.ca), Geek Squad (GeekSquad.com), and Magnolia
Hi-Fi (MagnoliaHiFi.com). The company's many subsidiaries reach
consumers through nearly 700 retail stores in the United States
and Canada. Best Buy's quarterly earnings report is due 9/17/03.
BBY - Best Buy $51.45
PLAY (very conservative - bullish/credit spread):
BUY PUT SEP-42.50 BBY-UV OI=6950 ASK=$0.30
SELL PUT SEP-45.00 BBY-UI OI=6081 BID=$0.50
INITIAL NET-CREDIT TARGET=$0.20-$0.30
POTENTIAL PROFIT(max)=8% B/E=$44.80
**************
MUR - Murphy Oil $53.62 *** Oil Sector ***
Murphy Oil Corporation (NYSE:MUR) is a worldwide oil and gas
exploration and production company with refining and marketing
operations in the United States and the United Kingdom. The
firm's operations are classified into two business activities:
Exploration and Production; and Refining and Marketing. Murphy's
principal exploration and production activities are conducted in
the United States, Ecuador and Malaysia by wholly owned Murphy
Exploration & Production Company and its subsidiaries; in western
Canada and offshore eastern Canada by wholly owned Murphy Oil and
its subsidiaries; and in the U.K. North Sea and Atlantic Margin
by wholly owned Murphy Petroleum Limited. Murphy Oil USA, Inc.,
a wholly owned subsidiary, owns and operates two refineries in
the United States and markets refined products through a network
of retail gasoline stations and branded and unbranded wholesale
customers.
MUR - Murphy Oil $53.62
PLAY (conservative - bullish/credit spread):
BUY PUT SEP-45.00 MUR-UI OI=258 ASK=$0.25
SELL PUT SEP-50.00 MUR-UJ OI=1578 BID=$0.70
INITIAL NET-CREDIT TARGET=$0.50-$0.55
POTENTIAL PROFIT(max)=11% B/E=$49.50
**************
VIP - Vimpel Communications $54.95 *** Terrific Telecom! ***
Vimpel Communications (NYSE:VIP) is an established provider of
telecommunications services in Russia, operating under the Bee
Line family of brand names. VimpelCom's license portfolio covers
approximately 92% of Russia's population (134 million people),
including the City of Moscow and the Moscow Region. VimpelCom
introduced two digital cellular communications standards to Russia
and built a dual band GSM-900/1800 cellular network. The company
also led the development and emergence of the mass consumer market
for wireless communications in Russia by introducing a prepaid
product solution. VimpelCom offers various technologies, such as
wireless application protocol and BeeOnline, a multi-access web
portal that provides a multitude of wireless information and
entertainment services, including location-based features. The
company is due to report earnings on 8/28/03.
VIP - Vimpel-Communications $54.95
PLAY (conservative - bullish/credit spread):
BUY PUT SEP-45.00 VIP-UI OI=112 ASK=$0.25
SELL PUT SEP-50.00 VIP-UJ OI=31 BID=$0.70
INITIAL NET-CREDIT TARGET=$0.50-$0.60
POTENTIAL PROFIT(max)=11% B/E=$49.50
**************
BEARISH PLAYS - NAKED CALLS
Based on analysis of option pricing and the underlying stock's
technical background, these positions meet our fundamental
criteria for bearish "premium-selling" strategies. Each issue
has robust option premiums, a well-defined resistance area and
a high probability of remaining below the target strike prices.
As with any recommendations, these positions should be carefully
evaluated for portfolio suitability and reviewed with regard to
your strategic approach and personal trading style.
WARNING: THE RISK IN SELLING UNCOVERED OPTIONS IS SUBSTANTIAL!
The sale of uncovered calls entails considerable financial risk,
far more than the initial margin or collateral required to open
the position. The maximum financial obligation for the sale of a
naked option is the strike price (of the underlying stock) that
is sold. Although this obligation is reduced by the premium from
the sale of the option, a writer of options must have the cash or
collateral equivalent of the sold strike price in reserve at all
times. The simple fact is: stocks often experience large price
swings, exponentially increasing the margin maintenance and very
possibly causing a devastating shortfall in your portfolio. It
is also important that you consider using trading stops on naked
option positions to help limit losses when a stock price moves in
a volatile manner. Many professional traders suggest closing the
position when the underlying share value moves beyond the sold
strike, or using a "buy-to-close" stop order at a price that is no
more than twice the original premium received from the sold option.
***************
ACDO - Accredo Health $23.06 *** Earnings Speculation! ***
Accredo Health (NASDAQ:ACDO) provides specialized contract
pharmacy services on behalf of biopharmaceutical manufacturers
to patients with chronic diseases. The company's services help
simplify the difficult and often challenging medication process
for patients with a chronic disease and help ensure that patients
receive and take their medication as prescribed. The company's
services benefit biopharmaceutical manufacturers by accelerating
patient acceptance of new drugs, facilitating patient compliance
with the prescribed treatment and capturing valuable clinical
information about a new drug's effectiveness. The company's
services include contract pharmacy services, clinical services,
reimbursement services and delivery services. The company is
expected to announce quarterly earnings during the first week
in September.
ACDO - Accredo Health $23.06
PLAY (sell naked call):
Action Month & Option Open Last Cost Max. Simple
Req'd Strike Symbol Int. Price Basis Yield Yield
SELL CALL SEP 25 DZU IE 1,138 0.75 25.75 11.8% 2.9% *
SELL CALL SEP 22.5 DZU IX 1,024 1.60 24.10 17.8% 6.6%
**************
APC - Anadarko Petroleum $42.70 *** Failed Rally? ***
Anadarko Petroleum (NYSE:APC), through RME Petroleum Company,
RME Holding Company, Anadarko Canada Energy, Anadarko Canada
Corporation, RME Land and Anadarko Algeria Company, is a global
independent oil and gas exploration and production company. The
The company's major areas of operations are located in the United
States, primarily in Texas, Louisiana, the mid-continent region
and the western states, Alaska and in the shallow and deep waters
of the Gulf of Mexico, as well as in Canada and Algeria. APC is
also active in Venezuela, Qatar, Oman, Egypt, Australia, Tunisia,
Congo and Gabon.
APC - Anadarko Petroleum $42.70
PLAY (sell naked call):
Action Month & Option Open Last Cost Max. Simple
Req'd Strike Symbol Int. Price Basis Yield Yield
SELL CALL SEP 45 APC II 13,478 0.55 45.55 4.5% 1.2% *
SELL CALL SEP 42.5 APC IV 6,403 1.35 43.85 9.2% 3.1%
**************
BEARISH PLAYS - CREDIT SPREADS
All of these positions are favorable candidates for "bear-call"
credit spreads, based on the current price or trading range of
the underlying issue and its recent technical history or trend.
The probability of profit from these positions may be higher
than other plays in the same strategy, due to disparities in
option pricing. However, current news and market sentiment will
have an effect on these issues, so review each play individually
and make your own decision about its future outcome.
**************
APOL - Apollo Group $60.52 *** More Earnings Speculation! ***
Apollo Group (NASDAQ:APOL) provides higher education to working
adults. The company operates through its subsidiaries, The
University of Phoenix, Institute for Professional Development,
The College for Financial Planning Institutes Corporation and
Western International University. The company offers its many
programs and services at 65 campuses and 111 learning centers
in 37 states, Puerto Rico and Vancouver, British Columbia. The
company's earnings report is due Thursday morning; 8/28/2003.
APOL - Apollo Group $60.52
PLAY (less conservative - bearish/credit spread):
BUY CALL SEP-70.00 OAQ-IN OI=646 ASK=$0.20
SELL CALL SEP-65.00 OAQ-IM OI=1721 BID=$0.75
INITIAL NET-CREDIT TARGET=$0.60-$0.70
POTENTIAL PROFIT(max)=14% B/E=$65.60
**************
INTU - Intuit $45.94 *** Stuck In A Trading Range? ***
Intuit (NYSE:INTU) is a provider of business tax preparation and
personal finance software products and Web-based services that
simplify complex financial tasks for consumers, small businesses
and accounting professionals. The company's principal products
and services include Quicken, QuickBooks, Quicken TurboTax,
ProSeries, Lacerte and Quicken Loans. Intuit offers products and
services in five principal business divisions, which include Small
Business, Tax, Personal Finance, Quicken Loans and Global Business.
INTU - Intuit $45.94
PLAY (moderately aggressive - bearish/credit spread):
BUY CALL SEP-50.00 IQU-IJ OI=2113 ASK=$0.15
SELL CALL SEP-47.50 IQU-IW OI=1928 BID=$0.60
INITIAL NET-CREDIT TARGET=$0.45-$0.50
POTENTIAL PROFIT(max)=21% B/E=$47.95
**************
KBH - KB Home $56.31 *** Sector Consolidation ***
KB Home (NYSE:KBH) is a diversified homebuilder with operations
in Arizona, California, Colorado, Florida, Nevada, New Mexico and
Texas. KB Home builds homes that cater primarily to first-time
and first move-up homebuyers, usually in medium-sized developments
close to major metropolitan areas. The firm, through its majority
owned subsidiary Kaufman & Broad, also has operations in France.
Kaufman builds single-family homes and high-density residential
properties such as condominium complexes and commercial projects.
During the fiscal year ended November 30, 2002, the firm delivered
25,452 units and operated an average of 330 active communities.
The company also provides mortgage banking services through its
subsidiary, KB Home Mortgage Company. The company's quarterly
earnings report is due 9/16/03.
KBH - KB Home $56.31
PLAY (conservative - bearish/credit spread):
BUY CALL SEP-65.00 KBH-IM OI=420 ASK=$0.20
SELL CALL SEP-60.00 KBH-IL OI=1345 BID=$0.60
INITIAL NET-CREDIT TARGET=$0.45-$0.55
POTENTIAL PROFIT(max)=9% B/E=$60.45
**************
SEE DISCLAIMER - SECTION 1
**************
**********
Watch List
**********
Three Techs & a Cyclical
KLA-Tencor - KLAC - close: 58.51 change: +1.11
WHAT TO WATCH: There were several brokerage upgrades for
individual chip stocks today and the SOX hit new relative highs
after adding almost three percent. Lending its support to the
move was KLAC, up 1.93% on the session. The bounce from $56
looks buyable but the stock has previous resistance at $60. It's
a tough call to go one way or the other. Keep an eye on that $60
mark.
Chart=
---
Electronic Arts - ERTS - close: 86.98 change: -1.63
WHAT TO WATCH: Keep an eye on ERTS. The GSO software index is
near new 52-week highs but ERTS is slipping back from its own new
highs. Shares are up very strongly the last few months and it's
a prime candidate for profit taking if only it would roll over.
Watch for a bounce from $86 for its next move higher or nimble
traders can try and catch a breakdown from $86 to $82.
Chart=
---
Adobe Systems - ADBE - close: 38.19 change: +0.05
WHAT TO WATCH: We're not making any recommendations on ADBE yet
but it looks like one to watch. Bears can look at the stock and
see the big move from $32 to $38 with strong resistance at
$40.00. A failure at $40 and it might make a nice put play.
Bulls are looking at the strong rally and hoping for a breakout
over tough historical resistance at $40. The stock is certainly
short-term overbought so it could just churn sideways but the
trend of higher lows is certainly positive.
Chart=
---
Whirlpool - WHR - close: 69.89 change: +1.21
WHAT TO WATCH: We had a lot of tech stocks on the list tonight so
we added WHR. Could this stock be riding a late wave of new home
sales? Shares look very extended from their May lows near $51
but show no signs of slowing down. A move over historical
resistance at $70 could set up for another leg higher towards
congestion at $75 or even old highs near $80. If you're looking
for a cyclical stock to watch put this one on your list.
Chart=
**************
MARKET POSTURE
**************
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